HSBC warns of yen fluctuations, citing risks from the Bank of Japan governor's statements.

HSBC stated in a new report that commentary from Bank of Japan Governor Kazuo Ueda may pose a potential short-term risk. Joey Chew,Leaders of the China Foreign Exchange Trading Center Head of Asia FX Research at HSBC, noted that the yen is expected to remain volatile, and if Kazuo Ueda signals any dovish tones during his testimony, it could negatively impact the yen.

The report also mentioned that expectations for further rate hikes by the Bank of Japan could be challenged by dovish comments, putting pressure on the yen. Chew specifically pointed out that recent comments from Bank of Japan Deputy Governor Shinichi Uchida suggest that the central bank is unlikely to raise rates in the short term.

On Monday, the dollar fell 0.70% against the yen, closing at 146.57, and continued to decline slightly into Tuesday. Data from the U.S. Commodity Futures Trading Commission (CFTC) showed that speculators turned net long on yen futures for the first time since early 2021, which has become an important indicator of forex market positioning.

Chew also noted that while the shift in positioning is helping the dollar-yen pair move closer to the levels implied by yield differentials, the yen is expected to remain volatile. FX analyst Gary Howes added that throughout most of 2024, the yen has been the market's most favored "short" currency, with investors heavily betting on its depreciation. These bets have led to a significant appreciation of the yen. However, as the market moves toward equilibrium, the prospects for the yen's continued rebound diminish, making it more susceptible to setbacks.

As of 10:11 AM Beijing time on August 20, the dollar-yen rate was 146.60/61.

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